Store Closures Mask Retail as an Investment Hot Spot
Stories about store closures and bankruptcies mask the fact that retail is an active investment hot spot where cash flows, IPOs flourish, and opportunities boom.
A recent story in the Wall Street Journal, for example, focused on retail as an industry trapped in a continuous cycle of store closings by national chains. More significantly, it noted, while the closings eliminated under-performing stores and were supposedly intended to bolster e-commerce, the long-term result failed to produce improvements in sales and margins.
As much as I like the WSJ, after reading the story my reaction was: No kidding, Sherlock! Or something like that.
In a discussion about the WSJ article on RetailWire, Mark Ryski, CEO of HeadCount, correctly pointed out, “When we see a dramatic reduction of stores it’s often a precursor of larger financial failure.” In other words, the retailer was poorly managed before deciding to close stores.
Neil Saunders, managing director of GlobalData, noted “there is overcapacity in the U.S. market” and “there is more bad retail space than in other countries.” This comment makes the point that expanding into bad locations was a symptom of poor decision making in the first place.
And Steve Dennis, president of Sageberry Consulting, summed it all up with: “Show me a retailer that is closing a lot of stores and you’ve likely shown me a retailer that has a brand relevance and remarkability problem, not a too many stores problem.”
But all of this only tells part of the story. Hidden among all the store closings is a healthy, vibrant industry that is attracting huge amounts of investment capital.
Where Money Is Flowing
Despite the pandemic and the record number of store closings – predicted to hit 25,000 in 2020 by Coresight Research – there is a massive amount of evidence showing retail is actually a growth industry. Here is a rundown of investor interest in retail in just the last few months:
- Petco confidentially filed with the SEC in November for an IPO that is estimated to give the pet supplies retailer an enterprise value of $6 billion. Petco was acquired by a group of investors in 2016 for $4.6 billion.
- Also in November, delivery startup GoPuff agreed to purchase alcoholic beverage retailer BevMo! for $350 million. GoPuff is a Softbank-backed startup (2013) valued at $3.9 billion that operates 200 micro-fulfillment centers.
- Pool supplies retailer, Leslie’s, filed for an IPO in late October and established a market cap of more than $4 billion. The share price jumped 28% on the first day of trading on the Nasdaq and raised $680 million.
- Used clothing retailers ThredUp and Poshmark both filed for IPOs with the SEC. ThredUp filed in October and is expected to raise between $200 million and $300 million. Poshmark filed in September and has provided no numbers or date yet.
- Russian e-commerce marketplace Ozon filed for a public offering on Nasdaq in November. Referred to as the Amazon of Russia, Ozon’s filing calls for an IPO worth nearly $1 billion.
- Online retailer Mytheresa announced plans in November for an initial public offering in the U.S. in early 2021, which will value it between $1 billion and $1.5 billion. The German retailer specializes in luxury clothing and was purchased by Neiman Marcus in 2014 for $253 million.
- Luxury boutique platform Farfetch received a $1.1 billion investment in November from the Alibaha Group and Swiss luxury brand Richemont in recognition of Farfetch’s stellar sales and stock performance in 2020.
With every segment growing except for luxury goods, personal products and apparel, it is no surprise that retail is a red-hot investment target where cash is flowing, IPOs flourish, and opportunities are booming despite the pandemic.